The Relative Performance of UK Banks and Building Societies post-financial crisis

This report examines the performance of UK building societies since the end of the demutualisation process in 2000. It considers the relative strengths and weaknesses of the building society sector at a time when public confidence in the financial system, still shaken by the Global Financial Crisis, is low.

The UK banking sector was hit dramatically by the global financial crisis of 2008 and the sector continues to feel its repercussions, as far-reaching regulatory regulatory and policy measures designed to reduce the risk of a similar crisis are implemented. Although generally considered to have suffered less during the crisis than their shareholder-orientated counterparts, it is unavoidable that co-operative and mutual financial institutions will also find themselves responding to the new regulations. They have performed comparatively well since the crisis, but what does the future hold?

The Building Society Association (BSA) asked Cass Business School to conduct research into the relative performance of both banks and building societies, funding the attached report but granting Cass Business School independence in its findings. The aim was to understand the impact of the financial crisis and the subsequent regulatory shake-up, and to examine the prospects for the UK's building society sector. The report presents a comparative analysis of the performance of banks and buildings societies over the period 2000 - 2014.

The Key Findings were:

  • The Financial Crisis had a substantial negative impact on the financial sector.
  • Return on Equity and Return on Assets decreased for both groups in the wake of the financial turmoil.
  • Building societies recovered faster than their banking counterparts and have more stable asset growth than banks.
  • Building societies appear less risky than banks on a variety of measures, from lower volatility of earnings, lower volatility of NIMs and higher z-scores.
  • With the UK economy showing signs of recovery, the outlook is positive for both groups: banks and building societies have recovered some profitability, although not at the pre-crisis level. Asset and loan growth are mildly positive and the entry of new competitors seems to have had an encouraging effect on activity.

Author of the report, Dr Barbara Casu, Director of Cass Centre for Banking Research, said "The results of our in-depth comparative analysis of banks and building societies (using a wide variety of lending, performance and risk metrics) show that building societies perform well over different phases in the business cycle. As such building societies continue to play an integral role in supplying financial services to households throughout the UK."

Commenting on the report, BSA Chief Executive, Robin Fieth, said: "The findings in the Cass Business School report help demonstrate the diversity that building societies bring. The sector has a different approach to doing business, offering choice and competition for consumers no matter where they live in the UK.

"In the years following the financial crisis of 2007 and the banking scandals that continue to occupy the headlines, attributes such as "more stable" and "less risky" are often what people want to hear when it comes to their financial providers. When weighing up the shape of the financial services sector, we urge the Government, opinion-formers and policy-makers to take research of this nature into account, ensuring our sector - with its distinct purpose and customer-owned mutual business model - has the recognition and support it needs to continue offering a better deal for consumers."

The report is available for download at the link below. If you would like to discuss this report or any Cass Consulting projects, please contact Clare Avery


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